Tag Archives: Section 4-1

OTC Markets microcap companies are often former shells. Unfortunately for their shareholders, Rule 144 opinion letters cannot be used to clear stock for former blank check shells unless the Issuer is an SEC filer and meets the requirements of the Evergreen Rule.

However, an experienced securities lawyer may have other options under Section 4(a)(1).

A blank check company or “blank check shell” is a development stage company that has

no specific business plan or purpose or

has indicated its business plan is to engage in a merger or acquisition with an unidentified company.

These blank check companies are also commonly known as “419 shells” or “Form 10 shells.”

The Evergreen Rule in Layman’s Terms

Even once these companies do merge with an operating business, they are forever known as “former shells” and Rule 144 opinions can only be issued under certain circumstances under the “Evergreen Rule.”

The Evergreen Rule basically means that unless an Issuer is an SEC filer, and has filed “Form 10 Information” including audited financials for one year post shell status, and is current in its SEC filings, Rule 144 can never be used. As soon as a former shell becomes delinquent in its SEC filings, Rule 144 is not an option.

Unless the Evergreen Rule is satisfied, the SEC does not allow shareholders of former 419 shells to use use Rule 144 as an exemption from the registration requirements when selling stock.

Section 4(a)(1) May Be Used to Clear Stock of Former Shells

A Section 4(a)(1) legal opinion may be possible if the securities are greater than 2 years old and the Shareholder is not an underwriter or dealer.

A microcap securities attorney familiar with issuing legal opinions for former shells under Section 4(a)(1) can review your documents at no cost to determine if this alternative to Rule 144 can be used.

Shareholders in OTC microcap public companies seeking legal opinions are not always able to clear stock under Rule 144.

Rule 144 is not available if the Issuer is a shell company.

The SEC defines a shell company as an Issuer which has

Nominal operations;

Assets consisting solely of cash and cash equivalents; or

Assets consisting of any amount of cash and cash equivalents and nominal other assets.

Rule 144 is not available if the Issuer is a non-reporting former shell.

Under the Evergreen Rule, a former shell cannot use Rule 144 to clear stock unless it becomes an SEC filer (by filing Form 10 information and becoming subject to the reporting requirements of the Securities Exchange Act of 1934). The Issuer must also have filed SEC reports for the prior 12 months and be current in those filings.

Section 4(1) can be used by both current and former shell companies.

In contrast to Rule 144, shareholders holding restricted stock in current shell companies and former shells may be able to use Section 4(1) to clear their stock.

Section 4(1) may be available if

The holding period is greater than Two (2) Years. This is twice as long as required for non reporting companies under Rule 144;

The shareholder is not an underwriter or dealer. Unlike Rule 144, Affiliates cannot use Section 4(1) to clear restricted stock.